Commercial lending overtakes home loan growth

By James Mitchell

06 July 2016

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New figures from the Reserve Bank have revealed that April and May were the first months since the GFC where business credit grew at a faster rate than home lending.

The RBA’s financial aggregate data, which includes loan volumes from bank and non-bank lenders, found business lending grew by 7.1 per cent for the 12 months to May this year, while home lending grew by 6.9 per cent.

Morningstar analyst David Ellis noted that during the height of the GFC, demand for business credit contracted by 7.5 per cent in the year to 30 November 2009.

“Business credit has steadily recovered, eventually turning positive in September 2011 and continues to gain traction,” Mr Ellis said.

Regulatory measures to curb investor home loan growth, coupled with an appetite among the banks to increase risk-adjusted volume growth, has resulted in lenders competing harder for business customers. Following their successful third-party home loan strategies, many lenders are now looking to mortgage brokers as a viable distribution channel for business credit.

ING Direct experienced a record month in May, with commercial and business lending in the sub-$5 million category – up 40 per cent on this time last year.

The challenger bank said strong growth in business credit in recent months offers an opportunity for brokers in the commercial lending market, especially in the second half of the calendar year when 60 per cent of business credit is typically written.

ING Direct national partnerships manager, commercial, John Kolyvas, said all signs are pointing to a successful year for brokers engaged in the commercial property market.

“The current growth for business credit is outstripping 2015 and we’re on the cusp of the busiest time of year (July-December) for commercial property lending,” Mr Kolyvas said.

ING Direct has built a proposition specific to residential brokers who want to diversify into commercial. Residential brokers can continue to work with their ING Direct residential BDM, who is supported by the bank’s credit assist team, sharing knowledge of the commercial lending process with brokers and workshopping deals.

“Our focus is to support brokers to upskill and diversify their business, and help them build longstanding and valuable relationships with their clients meeting their property needs beyond residential,” Mr Kolyvas said.

While residential property, in particular lending for investment property, has been the target of increased regulatory scrutiny since mid-2014, commercial real estate has traditionally been a far greater source of risk to the Australian financial system.

Last week, the Reserve Bank’s financial stability department chief, Luci Ellis, said commercial real estate and property developers have tended to be the causal agents in banking crises.

However, in a research note this week, Morningstar’s David Ellis noted that residential commercial real estate development is a relatively small component of all major bank exposures, comprising less than 2 per cent of total loans.